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The number and value of international bonds issued from the Middle East could jump in 2016 as borrowers, including governments and banks, arrange new funding in the face of falling oil prices, according to bankers in the region.

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Bankers in the Middle East expect an increase in bond issues in 2016

Mustafa Aziz Ata, head of debt capital markets for the Middle East and North Africa at HSBC, said he expects to see “an uptick in the volume and the value of deals” from the Middle East during 2016, with a growing variety of borrowers coming into the market.

According to Dealogic, there have been no bonds or sukuk, a bond-like instrument compliant with Islamic law, priced in the Middle East so far in 2016. But the government of the emirate of Sharjah is running a roadshow ahead of a possible sukuk, while Omani telecoms company Omantel is also in the market, according to documents from one of its bookrunners seen by Financial News.

International bonds and sukuk from the Middle East totalled $30.7 billion across 87 issuances in 2015, according to Dealogic. That value was down 20% from 2014’s total of $38.6 billion, although the number of deals was at an annual record, up from 66 in 2014.

Historically, one or two countries would dominate Middle Eastern issuance, Aziz Ata said, pointing to the United Arab Emirates as an example of a particularly busy source of deals: “This year I expect to see a more diverse set of issuers by profile and geography.”

Andy Cairns, global head of debt origination and distribution at National Bank of Abu Dhabi, said tougher borrowing conditions in the loan market as bank liquidity lessens would mean the bond and sukuk markets needed to “take up some of the slack”.

Cairns said: “The total quantum of funding in 2016, across syndicated loans, bonds and sukuk, will be flat to up. But there will be a material increase in the capital markets component of that funding.”

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Analysts at Kuwait-based Kamco Investment Company said in a January 6 note that fiscal deficit gaps caused by the lower oil price and the need to invest in infrastructure would encourage more sovereigns to sell bonds and sukuk in 2016.

Kamco’s analysts pointed to the expected international bond issuance from Saudi Arabia as a possible highlight for the year, following a programme of local currency issuances from the sovereign since mid-2015.

Sameer Nawaz, co-head of investment banking at local firm Saudi Fransi Capital, agreed that the sovereign issuance would be the main focus of the bond market in the country this year.

That deal would make the Saudi government a key client for investment banks to target, considering that it is also considering selling shares in state-owned oil company Saudi Aramco in an initial public offering.

Eight international sovereign issuances priced from the region in 2015, with close to $9 billion raised between Bahrain, Jordan, Lebanon, Oman and Ras Al Khaimah in the UAE.

National Bank of Abu Dhabi’s Cairns said it was “not inconceivable” that sovereigns in the Gulf Cooperation Council could issue between $15 billion and $20 billion in the international markets in 2016. He added that Qatar, Saudi Arabia and Abu Dhabi could all issue jumbo bonds of more than $5 billion.

A head of Middle East debt capital markets at a US investment bank said: "If a government like Saudi Arabia or Qatar decides to access the market, they'll come with large benchmarks that will move the annual issuance total significantly."

Kamco’s analysts expect sukuk issuance to increase during 2016, particularly as a source of infrastructure funding. They wrote: “Conventional issues outpaced Islamic issues in 2015; consequently, there is still plenty of liquidity available in the Islamic fund market ready to be tapped by the governments and private sector.”

That market is expected to be dominated by Saudi Arabia and the United Arab Emirates, Kamco’s analysts added, with Kuwait and Oman also seen as likely sources of new deals.

Banks, traditionally a frequent issuer base of debt in the Middle East, continued to tap the markets in 2015, the biggest deal coming from Dubai Islamic Bank, which raised $1 billion with a sukuk in January 2015.

Credit analysts at rating agency Standard & Poor’s said banks in the United Arab Emirates faced “several quarters, if not years,” of weak growth in local deposits, their traditional source of funding. As the oil price has fallen, they noted, so have government and public sector deposits with local banks, which dropped 14% to $94 billion between September 30, 2014 and November 30, 2015.

S&P’s analysts, led by Dubai-based Timucin Engin, added in their January 11 report: “Now [UAE banks will] probably have to look beyond their borders. We might see UAE banks try to diversify their funding via more frequent foreign issuances.”